The Toronto Stock Exchange had its worst day in more than two years on Thursday as investors faced the reality of significantly higher interest rates to bring down stubbornly high inflation.
The benchmark Canadian stock index lost 618 points to close below 19,000 for the first time since April 2021. In percentage terms, it was the worst day for the Canadian stock market in two years.
The TSX followed the lead of stock markets around the world, which fell in unison after the Federal Reserve raised its key interest rate by 75 basis points on Wednesday, its biggest rise in 26 years.
The Swiss National Bank and the Bank of England followed suit on Thursday, raising their lending rates in a bid to calm overheated economies.
“The market is digesting what 75 points means and wondering if the Fed can continue this aggressive cycle without triggering a recession?” said Brenda O’Connor-Juanas, senior vice president of investment banking UBS.
Great hike expected in Canada
After rising three times this year to take its rate from 0.25% as recently as March to 1.5% now, investors expect the Bank of Canada to announce its own rate hike this month. next, bringing its rate to 2.25. %, a level not seen since before the 2009 financial crisis.
Persistent inflation has cooled equity markets recently as investors realize that persistently rising prices will dampen profits as consumers are forced to find ways to cut spending.
“We have an overheated economy and there’s only one way to calm it down, and it’s going to be painful,” O’Connor-Juanas told CBC News in an interview.
All 11 TSX sub-indices were down, from energy to banks, and from healthcare to technology.
Things were even worse on Wall Street, where the Dow Jones Industrial Average fell 700 points or more than 3% to dip below the 30,000 level for the first time since January 2021.
“These are psychological barriers,” said Anthony Scilipoti, CEO of Toronto-based Veritas Investment Research. “The problem with selling is that it begets selling.”
The broader S&P 500 had its worst day since September 2020, losing 123 points, or more than 3%.
Both the S&P and the tech-focused Nasdaq have officially entered bear markets, meaning they are down 20% or more from the peak.